Ongoing global unrest continues to stimulate the defense and security communities’ appetite for satellite imagery. Geographically tense
areas demand continuous monitoring by regional governments and/or independent observers. During the last decade, unrest in the Middle East, North Africa and the Korean Peninsula, among others areas, has increased the pace of reconnaissance activities and observations, fueling the need for remotely sensed data. Often these operations occur in remote or inhospitable terrain, requiring up-to-date observations for a range of applications.

Homeland security activities, such as border and civil protection, also have received increased attention from the public and governments around the world thanks to illegal immigration and counter-terrorism. Demand for data to support these needs comes from civilian government and military customers.

Such demand, however, is being challenged by increasing economic pressure around the world, guiding governments to find the most cost-effective solution to meet their image intelligence (IMINT) requirements. Imagery sources include developing proprietary satellite-based Earth observation (EO) defense solutions, obtaining data from third-party governments under cooperative agreements, procuring data from commercial imagery suppliers or a combination of these factors.

Defense Drives the Market

Several countries operate a defense EO fleet or operate EO systems (civil or defense) that provide the high-accuracy, high-resolution datasets required to support defense applications. According to Euroconsult’s latest research report, Earth Observation: Defense and Security, as of 2012, only 11 countries have developed EO defense capacity dedicated to supporting IMINT. These countries launched 75 unclassified defense and dual-use satellites between 2003 and 2012.

This figure is expected to rise to 100 satellites between 2013-2022, and three additional countries will launch dedicated capacity. With high costs and strained budgets, development of dual-use systems, which spread costs and use across multiple government departments, is expected to increase. Further mechanisms to recoup system costs and/or to support national industry will include commercializing government satellites through dedicated data distribution entities, such as those already observed in France (Pléiades) and Italy (COSMO-Skymed), and the sale of data from dual-use systems.

Such systems will compete with the commercial data market. Following the launch of the first sub-meter commercial imaging satellite, IKONOS, in 1999, additional satellites offering high-resolution (submeter) imaging continue to be developed and launched to meet commercial data demand.

With a limited number of countries operating high-resolution satellites, defense users have emerged as the first market for commercial data. Such data either augment proprietary supply or provide the only source of high-resolution imagery. Indeed, no single satellite system can fulfill all of a country’s IMINT requirements. The United States, despite having a dedicated defense satellite fleet, is still the largest consumer of commercial imagery, and defense is the primary application area.

In 2012, 67 percent ($990 million) of the total $1.5 billion EO commercial data market was attributed to defense customers. Of this $990 million, close to 50 percent is attributable to the U.S. government, which through the National Geospatial-Intelligence Agency (NGA) represents the largest customer of commercial EO data.

Expanding Market Growth

NGA’s increased level of procurement drove growth in the overall commercial data market from 2006 to 2010. However, demand stabilized following the award of EnhancedView contracts to U.S. operators and data providers DigitalGlobe and GeoEye in 2010. Indeed, U.S. procurement is expected to drop in 2013, with EnhancedView impacted by austerity measures within the broader U.S. government. This scaling back of data and services for defense purposes promoted GeoEye’s recent merger with DigitalGlobe.

Now growth in the commercial data sector is being driven by wider global sales to defense users, particularly by countries with high IMINT requirements and limited proprietary solutions. To meet these needs, commercial operators are finding success in providing direct access contracts to foreign defense users. These “direct access” contracts, which can provide autonomous tasking and downlinking, secure data access and confidentiality, are meeting demand outside commercial operators’ countries of operation. In addition, these multimillion, potentially multiyear contracts provide a stable revenue source for commercial operators. With continued high demand, revenues from commercial data sales to defense are expected to grow to $2.2 billion by 2022.

Data requirements from commercial sources mirror those from proprietary defense solutions, i.e., high-accuracy, high-resolution imagery delivered in a timely fashion. With similar data demands, it’s expensive to develop such high-performing commercial satellites, thereby limiting the possible number of entrants. High-resolution systems that have less sophisticated star trackers, pointing systems and processing to ensure geo-location accuracy have less value to defense users, who typically require more accurate positioning than users developing civil applications.

Advances such as agile systems based on control-moment gyro technology, allowing for increased point target collection and/or stereo imaging, come at a higher development cost. With these higher costs, current solutions from DigitalGlobe have partly relied on government funding to support next-generation systems.

Further commercial solutions, such as COSMO-SkyMed and Pléiades, were financed by government agencies, whereas solutions such as TerraSAR-X (German Aerospace Center/EADS Astrium) and RADARSAT-2 (Canadian Space Agency/MacDonald Dettwiler and Associates) engaged in cost-sharing based on a public-private partnership mode. Such arrangements reduce the need to rely solely on government financing for a commercial imaging solution, a potentially risky situation that was highlighted by GeoEye’s gamble on such a business model, which eventually resulted in its acquisition by DigitalGlobe.